Spending watchdog rebukes the Department for Transport over new intercity contract that will supply trains for the South Wales mainline

The National Audit Office said the department had 'created confusion'

A First Great Western train on the London-Swansea mainline near Hensol

Whitehall’s handling of two huge new-train contracts, one of which will supply intercity trains for the South Wales mainline, has been criticised by a Government spending watchdog.

One decision that had been taken by the Department for Transport (DfT) involving the £7.65bn Intercity Express (IE) contract had “created confusion in parts of the (rail) industry about the department’s role” said a report by the National Audit Office (NAO).

The DfT had decided to itself lead the procurement process for IE and for the £2.8 billion Thameslink contract “despite not having led a major rolling stock procurement before”, the NAO said.

In the case of IE, the department decided to proceed with a revised bid without re-running the competition. The NAO said the DfT’s view was that no other manufacturer could offer better value for money but that this remained untested.

The report said that just two years after the IE procurement began, the DfT decided to electrify the Great Western main line which meant that diesel trains were no longer needed.

The NAO said that the DfT awarded both contracts more than two and a half years later than intended, largely because of pauses to the procurements and the challenge of securing finance for these projects during the financial crisis.

The NAO said that the department was departing from its stated policy of leaving train procurements to the industry, particularly following its decision in July 2013 to exercise an option in the original contract with Agility Trains to add 270 carriages to its IE order at a cost of £1.4 billion.

“This has created confusion in parts of the industry about the department’s role,” said the NAO.

The report said the DfT had signed the contracts “in line with broad objectives”.

These included reducing the long-term costs to the whole rail system and improving the reliability and availability of trains by transferring risks to the train service suppliers as well as increasing capacity to accommodate predicted increases in demand.

But the NAO added that it would not be able to conclude fully on the value for money of either project until the new trains are in service - a process that will not be completed until early 2020.

NAO head Amyas Morse said: “At the moment there is a gap between the department’s stated desire to play only a strategic role in the rail industry and how it is acting.

“It needs to ensure that the industry understands its policy on the procurement of trains and produce a detailed integrated plan bringing together infrastructure, rolling stock and franchising strategy.”

House of Commons Public Accounts Committee chairman Margaret Hodge said: “The (two) programmes required £6.5 billion in initial funding which led the Department to adopt a PFI (public finance initiative) model as it could not find funding within its existing budgets.

“I am pleased to learn that whilst completing these deals during difficult financial times, the department has retained the ability to re-finance at a later date to secure better value for money for the taxpayer.”

She went on: “I am worried however that the department accepted a revised bid from its preferred bidder, Agility Trains on Intercity Express, without first checking whether other providers could deliver a better deal.

“I would have expected a more considered judgment from the department given the scale of the project and the amount of money involved.”

Mick Whelan, general secretary of train drivers’ union Aslef, said: “The Government is giving rail franchises to their mates. They are giving an opportunity for firms to make private profits at public expense.

“Now it’s happening with two large procurements of rolling stock, for Thameslink and Intercity Express.

“There’s a dangerous lack of rigour, and a dangerous lack of transparency, in all this. We fear the public purse will, once again, be ripped off by a Government that regards public services as an opportunity for their mates to turn a handsome profit.”

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